Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

374

Explanation:

Data provided in the question:

Market shares of top six firms

10%, 8%, 8%, 5%, 5%, and 4%

Market shares of 20 firms = 2%

Now,

Herfindahl index = ∑[ (Market share percentage of each of firms) ² ]

or

Herfindahl index

= ∑[ (Market share of each of top six firms) ² ] + [20 * (market share of each remaining firm) ²]

Herfindahl index = (10) ² + (8) ² + (8) ² + (5) ² + (5) ² + (4) ² + [20 * (2) ²]

or

Herfindahl index = 100 + 64 + 64 + 25 + 25 + 16 + 80

or

Herfindahl index = 374

The herfindahl index for this industry is 374.